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The Commerce Commission is looking into how high interest online lenders assess whether a person can afford to borrow money after a rise in complaints about the industry.

Figures from the Commerce Commission's annual consumer issues report show that while finance companies remain the most complained about sector when it comes to consumer credit, their proportion of complaints fell significantly in the last year from 43 per cent to 24 per cent of the 242 complaints.

But complaints about short term lenders with interest rates over 50 per cent annually - which includes pay day lenders - rose to 33 or 13.6 per cent.

The commission said it had historically received few complaints about these lenders but that had changed in the last year.

"In 2017 this changed, with a growing number of complaints about lenders offering these high-interest loans."

The report said budget advisers had told it widespread availability of high cost short terms loans applied for online or via text message could make it particularly easy for people to borrow beyond their capacity to pay back the money.

"They are concerned that it also reduces the likelihood that lenders make reasonable enquiries about the financial circumstances and needs of the borrower.

"The complaints we are now receiving reflect these concerns."

In 2015 the government tightened up the Credit Contracts and Consumer Finance Act (CCCFA) and introduced a responsible lending code which put the emphasis on lenders to ensure consumers can afford to pay back a loan without getting into financial difficulty.

The commission's report found concerns around responsible lending was the biggest area of complaints in the year to June 30, 2017 with 70 complaints.

Commissioner Anna Rawlings said irresponsible lending was a priority for the commission's credit enforcement team.

"As part of this we are currently investigating responsible lending practices, in particular affordability assessments, of a number of online lenders providing high interest loans."

Margaret Lafaiki, a team leader at the Papakura Budgeting Service, said clients were often reluctant to make complaints to the commission about lenders because they didn't want to make further problems for themselves.

That meant the number of complaints was likely to be under-reported.

She said often the applications for short term high interest loans took less than 15 minutes to be approved online and the people hadn't realised what the interest rate was or sometimes the contract details were not readily available.

Then they got caught in a cycle of paying high interest as they were encouraged to top up borrowings when they had paid down some of the debt.

Lafaiki said she knew of some cases where the lender excluded other loans when it came to assessing if a person could afford to borrow money or did not check the applicant's income levels or income sources.

She had asked one lender to provide details showing how it had assessed a person's budget and ability to pay back the money and been refused the details.

"I think if they are going to do budgeting it should be open."

It should also include yearly costs and other regular costs not just the basics like rent, food and utilities, she said.

"If you are desperate and someone is offering to put $100 in your bank account the next day, who would not do it? The consequences come later."

High interest lenders can often charge 1 per cent a day adding up to 365 per cent a year.

"Places like that are preying on people's desperation for money."

It was not just beneficiaries who were coming in with money problems but an increasing number of working people, she said.

Tim Barnett, chief executive of the Financial Capability Trust, which co-ordinates New Zealand's budget advice services, said after the law reforms in 2014 complaints relating to responsible lending had fallen and there was evidence that companies were being cautious and careful.

But recently new companies had come onto the market and parts of the law were being tested as well as people having greater awareness of their rights.

Barnett said there appeared to be some companies who were either unaware of the law or were getting around parts of it when it came to assessing affordability.

Lyn McMoran, chief executive of the Financial Service Federation, which represents more than 40 finance companies but does not have any pay day lender members, said the rise in complaints was likely down to growing awareness by consumers about the responsible lending code.

"I'm sure there are pay day lenders out there trying to do the right thing."

But when some did not the whole industry got tarred by it, she said.

McMoran said growing awareness of the code meant consumer complaints about responsible lending were likely to rise in the coming years.

"We want to see consumers treated fairly, as much as anyone else does."

The Herald contacted three payday lenders for comment yesterday.

One, called Save My Bacon, said it "took responsible lending obligations very seriously and protecting borrowers' welfare" was to core to it lending practises.

"Save My Bacon considers that its practices not only fully comply - but exceed - the strict requirements of the CCCFA and the Responsible Lending Code," a spokesman said.

"As part of our comprehensive compliance framework and strict responsible lending programme we undertake reasonable enquiries regarding an applicant's financial situation and requirements. Our fully robust assessment process determines the suitability of a contract for the applicant and loan affordability. We take reasonable steps to verify every new applicant's situation, which includes conducting a full bank statement assessment to determine loan affordability and identify any 'red flags' such as interaction with multiple creditors over a given period."

Save My Bacon declines around 70 per cent of all new loan applications, which a spokesman said was "an indicator of the strict assessment process applicable to achieve an approved loan status".